financial & operating results€¦ · 2017 highlights 5 net income attributed to shareholders...
TRANSCRIPT
Fourth Quarter 2017
Financial & Operating Results
February 8, 2018
Caution regarding forward-looking statements
2
From time to time, Manulife Financial Corporation (“MFC”) makes written and/or oral forward-looking statements, including in this presentation. In addition, our representatives may make forward-looking
statements orally to analysts, investors, the media and others. All such statements are made pursuant to the “safe harbour” provisions of Canadian provincial securities laws and the U.S. Private Securities
Litigation Reform Act of 1995.
The forward-looking statements in this presentation include, but are not limited to, statements with respect to the expected impact of our decision to reduce the allocation to alternative long-duration assets
(“ALDA”) in our portfolio asset mix of our legacy business and of U.S. Tax Reform, expected average annual growth in core earnings per common share ("Core EPS") over the medium term (communicated
at Investor Day 2015), and Manulife’s expected capital position under the new LICAT guideline and also relate to, among other things, our objectives, goals, strategies, intentions, plans, beliefs, expectations
and estimates, and can generally be identified by the use of words such as “may”, “will”, “could”, “should”, “would”, “likely”, “suspect”, “outlook”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “plan”,
“forecast”, “objective”, “seek”, “aim”, “continue”, “goal”, “restore”, “embark” and “endeavour” (or the negative thereof) and words and expressions of similar import, and include statements concerning
possible or assumed future results. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue
reliance should not be placed on such statements and they should not be interpreted as confirming market or analysts’ expectations in any way.
Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. Important factors that
could cause actual results to differ materially from expectations include but are not limited to: the final interpretation of U.S. Tax Reform by tax authorities, the amount of time required to reduce the
allocation to ALDA in our asset mix and redeploy capital towards higher-return businesses, the specific type of ALDA we dispose of and the value realized from such dispositions; general business and
economic conditions (including but not limited to the performance, volatility and correlation of equity markets, interest rates, credit and swap spreads, currency rates, investment losses and defaults, market
liquidity and creditworthiness of guarantors, reinsurers and counterparties); changes in laws and regulations; changes in accounting standards applicable in any of the territories in which we operate;
changes in regulatory capital requirements; our ability to execute strategic plans and changes to strategic plans; downgrades in our financial strength or credit ratings; our ability to maintain our reputation;
impairments of goodwill or intangible assets or the establishment of provisions against future tax assets; the accuracy of estimates relating to morbidity, mortality and policyholder behaviour; the accuracy of
other estimates used in applying accounting policies, actuarial methods and embedded value methods; our ability to implement effective hedging strategies and unforeseen consequences arising from such
strategies; our ability to source appropriate assets to back our long-dated liabilities; level of competition and consolidation; our ability to market and distribute products through current and future distribution
channels; unforeseen liabilities or asset impairments arising from acquisitions and dispositions of businesses; the realization of losses arising from the sale of investments classified as available-for-sale; our
liquidity, including the availability of financing to satisfy existing financial liabilities on expected maturity dates when required; obligations to pledge additional collateral; the availability of letters of credit to
provide capital management flexibility; accuracy of information received from counterparties and the ability of counterparties to meet their obligations; the availability, affordability and adequacy of
reinsurance; legal and regulatory proceedings, including tax audits, tax litigation or similar proceedings; our ability to adapt products and services to the changing market; our ability to attract and retain key
executives, employees and agents; the appropriate use and interpretation of complex models or deficiencies in models used; political, legal, operational and other risks associated with our non-North
American operations; acquisitions and our ability to complete acquisitions including the availability of equity and debt financing for this purpose;; the disruption of or changes to key elements of the
Company’s or public infrastructure systems; environmental concerns; our ability to protect our intellectual property and exposure to claims of infringement; and our inability to withdraw cash from
subsidiaries.
Additional information about material risk factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements
may be found under “Risk Management”, “Risk Factors” and “Critical Accounting and Actuarial Policies” in the Management’s Discussion and Analysis in our most recent annual report, under “Risk
Management and Risk Factors Update” and “Critical Accounting and Actuarial Policies” in the Management’s Discussion and Analysis in our most recent interim report, in the “Risk Management” note to
consolidated financial statements in our most recent annual and interim reports and elsewhere in our filings with Canadian and U.S. securities regulators. The forward-looking statements in this presentation
are, unless otherwise indicated, stated as of the date hereof and are presented for the purpose of assisting investors and others in understanding our financial position and results of operations, our future
operations, as well as our objectives and strategic priorities, and may not be appropriate for other purposes. We do not undertake to update any forward-looking statements, except as required by law.
Conference Call Participants
3
Roy Gori,President and Chief Executive Officer.
Mike Doughty,General Manager, Canada.
Steve Finch,Chief Actuary.
Marianne Harrison,General Manager, U.S.
Scott Hartz,
Head of General Account Investments.
Rahim Hirji,Chief Risk Officer.
Naveed Irshad,
Head of North American Legacy Businesses.
Paul Lorentz,Global Head of Wealth and Asset Management.
Linda Mantia,
Chief Operating Officer.
Warren Thomson,
Chief Investment Officer.
Anil Wadhwani,General Manager, Asia.
Phil Witherington,Chief Financial Officer.
4
CEO’s remarks
Roy Gori,President & Chief Executive Officer
2017 highlights
5
▪ Net income attributed to shareholders of $2.1 billion
▪ Impacted by the $2.8 billion post-tax charge as a result of U.S. Tax Reform and portfolio asset mix changes in our legacy businesses
▪ Strong operating results in 2017 with core earnings of $4.6 billion, up 14% from prior year
▪ Generated strong top line growth in Asia sales and new business value
▪ Continued to generate positive net flows in our wealth and asset management businesses
▪ Increased the dividend by 7% to 22¢ per share
Strong growth in profitability and dividends
6
Core Earnings(C$ million)
2.62.9
3.4
4.0
4.6
2013 2014 2015 2016
+15% CAGR
2017
52.057.0
66.574.0
82.0
2017
+12% CAGR
2016201520142013
Annual dividend(C$ cents per Share)
Reminder: Narrowing our priorities to the things that matter most
7
Optimizing our
portfolio
Aggressively manage
costs
Accelerating growth in
highest potential
businesses
Putting customers first
Building a high-performing
team and culture
▪ Actively manage our legacy businesses to optimize financial results and improve the risk-return profile
▪ Focus on in-force management, cost efficiencies and leveraging scale, as well as exploring strategic
opportunities such as reinsurance treaties where it makes sense
▪ Become bolder and more ambitious on efficiency targets, driving accountability throughout the
organization
▪ Simplify and digitize processes and leverage scale to drive significant cost savings and promote
efficient growth
▪ Accelerate growth in high return and high growth businesses such as Asia and WAM
▪ Focus of capital deployment
▪ Focus on delighting customers
▪ Invest to innovative and digitize to differentiate ourselves and provide excellent customer experiences
▪ Drive execution by aligning around a narrower set of priorities
▪ Attract, develop and retain the best talent, wherever we do business, and engage and excite our
employees to rally around our customers
Objectives
Solid progress on our priorities
8
▪ Announced portfolio asset mix changes to free up a net $1 billion in capital from our legacy businesses
▪ Announced new structure for our North American legacy businesses and appointed general manager
to improve accountability
▪ Launched 2018 efficiency initiatives
▪ Introduced measures to strengthen expense management
▪ Delivered an 18% increase in APE sales and a 25% increase in new business value in Asia in 2017
▪ Continued net flows in WAM businesses and a 22% increase in core EBITDA in 2017
▪ Strengthened accountability of WAM structure
▪ Appointed new general managers of Asia and global WAM
▪ Enhanced digital offerings to improve customer experience and drive efficiency
▪ Announced new exclusive bancassurance partnerships in Vietnam and Cambodia
▪ Repositioned our insurance business in Thailand as a lean, pure digital pilot
▪ Announced leadership changes
▪ Implemented structural changes in WAM and legacy businesses
Recent achievements
Optimizing our
portfolio
Aggressively manage
costs
Accelerating growth in
highest potential
businesses
Putting customers first
Building a high-performing
team and culture
Portfolio asset mix changes in our North American legacy businesses expected to free up significant capital to redeploy towards higher return businesses
9
▪ An important step in our commitment to optimize the return on capital of our portfolio
▪ Will result in more efficient capital usage in our legacy business, as well as a reduced risk profile
▪ Frees up approximately $2 billion of capital over the next 12 to 18 months
▪ Net capital benefit of $1 billion in the medium-term which can be redeployed into higher return businesses
▪ Decision negatively impacts core earnings in the short-term by approximately $70 million per year after-tax until proceeds redeployed
Note: Contains forward looking statements, see “Caution regarding forward-looking statements” above.
Delivering strong top-line and value generation in Asia…
10
Asia APE sales(US$ million)
1,2351,447
1,836
2,498
2,887
2015 20172014 2016
+27% CAGR
2013
Asia new business value(US$ million)
367
537
754
926
n/a1
2013 2014
+38% CAGR
2015 20172016
1 New business value was prepared under a different methodology in 2013 and prior years and is therefore not comparable to more recent years.
…and our WAM businesses continue to deliver excellent growth
11
378
502
630 629
788
+15% CAGR
2016 20172013 20152014
WAM core earnings(C$ millions)
WAM assets under management and administration(C$ billions)
259315
510544
599
20142013 20172016
+20% CAGR
2015
CFO’s remarks
12
Phil Witherington,Chief Financial Officer.
4Q17 and full year 2017 financial summary
13
(C$ millions, unless noted)
Fourth Quarter Full Year
4Q16 4Q17 Change2 2016 2017 Change2
Profitability
Net income (loss) attributed to shareholders 63 (1,606) ▼nm 2,929 2,104 ▼ 28%
Core earnings 1,287 1,205 ▼ 6% 4,021 4,565 ▲ 14%
Diluted core earnings per share $0.63 $0.59 ▼ 6% $1.96 $2.22 ▲ 13%
Core return on equity (annualized) 12.9% 12.1% ▼ 0.8 pps 10.1% 11.3% ▲ 1.2 pps
Return on equity (annualized) 0.3% (17.1)% ▼ 17 pps 7.3% 5.0% ▼ 2.3 pps
Growth
Insurance sales (C$ millions) 1,074 1,003 ▼ 3% 3,952 4,704 ▲ 23%
WAM net flows (C$ billions) 6.1 3.7 ▼ 39% 15.3 17.6 ▲ 14%
WAM gross flows (C$ billions) 38.2 32.9 ▼ 11% 120.5 124.3 ▲ 5%
Other wealth sales (C$ billions) 1.7 2.1 ▲ 25% 8.2 8.1 ▲ 2%
New business value 367 389 ▲ 11% 1,226 1,472 ▲ 24%
Total assets under management and administration (AUMA) (C$ billions) 977 1,040 ▲ 11%
Wealth and asset management AUMA (C$ billions) 544 599 ▲ 14%
Financial
Strength
MLI’s MCCSR Ratio1 230% 224% ▼ 6 pps
Financial leverage ratio 29.5% 30.3% ▲ 0.8 pps
Remittances (C$ billions) 1.8 2.1 ▲ 17%
1 Minimum Continuing Capital and Surplus Requirements (MCCSR) of The Manufacturers Life Insurance Company (MLI). 2 Percentage changes in sales, gross flows, new business value, AUMA, Asia core earnings, new business value and new business value margin are stated on a constant currency basis, a Non-GAAP measure. See “Note to users – Performance and Non-GAAP Measures”.
Achieved $4.6 billion of core earnings in 2017, up 14% from 2016
14
4,0214,565
20172016
4Q17 core earnings of $1.2 billion, down 6% vs. 4Q16: - Favourable prior year tax benefits
- Lower core investment gains as cumulative limit achieved
+ Strong growth in Asia and WAM
+ Lower equity hedging costs and higher gains on available for sale equities
+ Policy-related items in the U.S.
2017 core earnings of $4.6 billion, up 14% vs. 2016:+ Higher core investment gains and lower equity hedging costs
+ New business and in-force growth in Asia
+ Higher fee income from our WAM businesses
- P&C claims provision for hurricanes and strengthening of Canadian dollar
4Q17 net loss of $1.6 billion, down $1.7 billion vs. 4Q16: - Upfront impact of U.S. Tax Reform
- Charge for portfolio asset mix changes
+ Less unfavourable direct market impacts
2017 net income of $2.1 billion, down $0.8 billion vs. 2016:- Upfront impact of U.S. Tax Reform
- Charge for portfolio asset mix changes
+ Growth in core earnings
+ Direct impact of markets
+ Neutral annual actuarial review compared to prior year charges
1,2051,287
4Q174Q16
2,929
2,104
2016 2017
63
4Q174Q16
(1,606)
Core Earnings(C$ millions)
Net Income (loss) attributed to shareholders(C$ millions)
Net income impacted by post-tax charges related to U.S. Tax Reform and portfolio asset mix changes
15
In C$ millions except on a per share amount Pre-tax Post-tax Per Share
Core earnings $1,517 $1,205 $0.591
Impact of the following items excluded from core earnings:
Investment-related experience outside of core earnings 17 18 0.01
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities2 (98) (68) (0.03)
Change in actuarial methods and assumptions (31) (33) (0.02)
Charge related to decision to change asset mix in legacy business (1,341) (1,032) (0.52)
Charge related to U.S. Tax Reform (2,245) (1,777) (0.90)
Integration and acquisition costs (22) (18) (0.01)
Other items 173 99 0.05
Net Income attributed to shareholders2 $(2,030) $(1,606) $(0.83)1
1 Per common share of MFC2 Please refer to “Financial Performance” in the 2017 MD&A for more information
Earnings reconciliation for the fourth quarter of 2017
Strong growth in expected profit largely from higher assets in our WAM businesses and in-force growth in Asia
16
1 The Source of Earnings (SOE) analysis is prepared following OSFI regulatory guidelines and draft guidelines of the Canadian Institute of Actuaries. The SOE is used to identify the primary sources of gains or losses in each reporting period. Per
OSFI instructions, Expected Profit on In-Force denominated in foreign currencies is translated at the prior quarter's balance sheet exchange rates, with the difference between those rates and the average rates used in the Statement of Income
being included in Experience gains (losses). 2 Expected Profit on In-Force increase (decrease) is on a constant currency basis..
4Q16 4Q17
Expected Profit on In-Force 1,288 1,371
Impact of New Business 23 59
Experience Gains/(Losses) (1,529) (213)
Mgmt Actions & Chgs in Assumptions (203) (3,400)
Earnings on Surplus Funds 4 165
Other 30 (12)
Income Before Taxes (387) (2,030)
Income Taxes 450 424
Net Income 63 (1,606)
Preferred Dividends (33) (40)
Common Shareholders’ Net Income 30 (1,646)
Currency Adjusted Expected Profit on In-force 1,243 1,371
▪ Expected Profit on In-Force increased by 7%2 primarily due to higherfee income in our WAM businesses from higher assets undermanagement and in-force growth in Asia
▪ Impact of New Business reflects strong new business volumes in Asiaand the favourable impact from pricing actions in Canada RetailInsurance, partially offset by higher non-deferrable acquisition costs inour WAM businesses
▪ Experience Gains/(Losses) reflects policyholder experience charges of $42 million pre-tax ($34 million post-tax) and charges related to the direct impact of interest rates, partially offset by the favourable impact of investment-related experience
▪ Management Actions & Changes in Assumptions includes pre-taxcharges of $3.6 billion related to announced portfolio asset mixchanges and U.S. Tax Reform
▪ Earnings on Surplus Funds reflect pre-tax gains of $174 millionincluded in core earnings, which benefitted from strong realized gainson AFS equity. Pre-tax charges of $10 million were reported outside ofcore earnings.
▪ Other largely reflects the impact of non-controlling interests in Asia
Source of earnings1
(C$ millions)
32nd consecutive quarter of positive net flows in our Wealth and Asset Management businesses
17
Wealth & Asset Management Net Flows(C$ billions)
Wealth & Asset Management Gross Flows(C$ billions)
Note: Order of the vertical bars on the chart correspond to the order in the legend with the exception of the 4Q16 and 2016 Wealth & Asset Management Net Flows, which as the result of outflows in our U.S. business, are stated in the following order: Canada, Asia and the U.S.
4Q17 gross flows of $32.9 billion, down 11% vs. 4Q16:
- Large institutional asset management mandates in 4Q16
- Lower retail sales in mainland China
+ Canada retail flows
+ Retirement flows in all three operating divisions
2017 WAM gross flows of $124.3 billion, up 5% vs. 2016
4.7
2.3
4.7 0.8
0.6
4Q17
3.7
4Q16
6.1
(3.3)
8.4
6.68.4
3.1
7.9
2017
17.6
2016
15.3
(1.5)
Asia
Canada
U.S.
11.3 8.7
9.7
6.2
17.2
18.0
-11%
4Q17
32.9
4Q16
38.2
26.0 27.8
24.7 23.2
69.8 73.3
+5%
2017
124.3
2016
120.5
Canada
Asia
U.S.
4Q17 WAM net flows of $3.7 billion:
+ Net flows across all divisions
+ Lower redemption rates in U.S. retail
+ Higher institutional net flows in the U.S.
- Prior year large case institutional sales in Canada and Asia
- Lower retail sales in mainland China
2017 WAM net flows of $17.6 billion
Strong full year sales growth driven by Asia and Canada group benefits
18
Insurance Sales(C$ millions)
4Q17 insurance sales of $1.0 billion, down 3% vs. 4Q16:
+ Strong growth in Singapore and Vietnam
+ Higher sales of term, UL and VUL in the U.S.
- Lower retail insurance sales in Canada due to 2017 pricing actions and higher prior year sales in advance of regulatory changes
2017 insurance sales of $4.7 billion, up 23% vs. 2016
Note: Order of the vertical bars on the chart correspond to the order in the legend.
678 687
237163
159
153
4Q16
1,074
-3%
4Q17
1,003
2,6512,995
693
1,106608
603
+23%
20172016
3,952
4,704
Asia
Canada
U.S.
New business value creation driven by strong sales and management actions in Asia
19
New Business Value (NBV)1
(C$ millions)
4Q17 new business value1 of $389 million, up 11% vs. 4Q16:
+ Higher sales in Asia
2017 new business value of $1.5 billion, up 24% vs. 2016
Asia 4Q17 new business value margins1 were 37.7% in 4Q17, in-line with 4Q16:
2017 new business value margins were 34.1%, up 2.3 percentage points from 2016
+ Product actions to improve margins
+ Scale benefits
1 Excludes Wealth and Asset Management businesses, the Bank and P&C reinsurance business. Note: Order of the vertical bars on the chart correspond to the order in the legend.
294319
25
16
48
54
389
4Q16
367
+11%
4Q17
998
1,201
169
220
59
51
2016
1,226
1,472
+24%
2017
Asia
Canada
U.S.
Over $1 trillion in assets under management and administration
20
4Q17 assets under management and administration of $1 trillion, up 11% from 4Q16:
+ Strong investment returns
+ Customer inflows
4Q17 assets under management and administration in our Wealth & Asset Management businesses of $599 billion, up 14% from 4Q16:
+ Strong investment returns
+ Net flows
Assets under management and administration (AUMA)(C$ billions)
104
19
544599
259
273
174
168
AUMA
(12/31/2017)
1,040
(60)
Currency & OtherInvestment
Income
Net Policy
Cashflows2
AUMA
(12/31/2016)
977
Insurance1
Other Wealth
Wealth & Asset Management
1 Includes Corporate & Other assets. 2 Excludes administrative services only premium equivalents and group benefits ceded premiums. Note: Order of the vertical bars on the chart correspond to the order in the legend.
U.S. Tax Reform is expected to provide ongoing benefits to net income and core earnings
▪ Lowered U.S. federal corporate income tax rate from 35% to 21%
▪ Places limits on tax deductibility of reserves
▪ Charge of $1.8 billion post-tax
▪ Expected ongoing benefit to net income attributed to shareholders and core earnings of approximately $240 million per year commencing in 2018
21
Note: Contains forward looking statements, see “Caution regarding forward-looking statements” above.
Summary
In 2017, Manulife:
▪ Delivered $2.1 billion in net income attributed to shareholders
▪ Achieved $4.6 billion in core earnings
▪ Generated 18% growth in APE sales and 25% growth in new business value in Asia
▪ Continued to generate positive net flows in our wealth and asset management businesses
▪ Raised the dividend for the fourth consecutive year
22
Question & Answer session
Appendix
24
▪ Core Earnings Change by Division
▪ Core Earnings Change by Business Line
▪ Operating Performance by Division/Wealth & Asset Management
▪ Other Wealth Sales
▪ Capital and Leverage
▪ Invested Asset Mix & Credit Experience
▪ Direct Market Impacts
▪ Earnings Sensitivities - Equity Exposure and Swap Exposure by
Market
Core earnings change by division
25
79
26
34
4Q17 core earnings
1,205
Expected macro
hedging costs
Corporate
& Other
(197)
U.S. DivisionCanadian
Division
(24)
Asia Division4Q16 core earnings
1,287
▪ Asia Division core earnings increased driven by strong new business volumes and solid in-force business growth, partially offset by unfavourable policyholder experience.
▪ Canadian Division core earnings decreased due to unfavourable policyholder experience in retail insurance, the non-repeat of prior year’s gains from a reinsurance recapture and a number of other smaller items, partially offset by higher fee income in our wealth and asset management businesses.
▪ U.S. Division core earnings increased due to higher WAM earnings primarily from higher average assets, improvement in policyholder experience, lower amortization of deferred acquisition costs in our V.A. business and favourable policy-related items.
▪ Corporate & Other core loss increased reflecting $100 million in core investment gains (versus $180 million in 4Q16), the non-recurrence of the release of tax related provisions in the prior year, and higher strategic initiative expenses, partially offset by higher gains on available for sale equities.
▪ Expected macro hedging costs declined due to a market appreciation and actions taken over the last year.
Core earnings(C$ millions)
Note: Core earnings changes for Asia Division and the U.S. Division are presented on a Canadian dollar basis. Beginning in 1Q17, earnings for Manulife Asset Management are no longer reported in the Corporate & Other segment and are reported in the respective divisions.
Core earnings change by business line
26
▪ Insurance core earnings improved driven by in-force and new business growth in Asia and improved policyholder experience.
▪ Wealth and asset management core earnings increased driven by higher fee income on higher asset levels.
▪ Other wealth core earnings decreased as lower benefits from the closing of prior year tax years more than offset lower deferred acquisition costs in our U.S. V.A. business.
▪ Corporate & Other core loss increased reflecting lower core investment gains, the non-recurrence of the release of tax related provisions in the prior year, and higher strategic initiative expenses, partially offset by lower expected macro hedge costs and higher gains on available for sale equities.
Core earnings(C$ millions)
15
135
4Q17 core earnings
1,205
Wealth and Asset
Management
Insurance Other Wealth Corporate & Other4Q16 core earnings
(168)
1,287
(64)
Asia: Generated strong top line and core earnings growth, and WAM gross flows in 2017
27
APE Sales(US$ millions)
+15%1
4Q174Q16
291332
+13%
4Q17
696
172
220
304
4Q16
618
143
233
242
Hong Kong
Japan
Asia Other
+18%
2017
2,887
584
1,102
1,201
2016
2,498
496
1,019
983
0.8
4.2 3.2
3.4
2.4
1.10.1
0.1
4Q16
8.5
-20%
4Q17
6.8
+11%
2017
21.5
3.9
0.5
12.6
4.5
2016
19.6
2.60.3
10.3
6.4
WAM gross flows(US$ billions)
Japan
Hong Kong
Asia Other
Institutional Asset Management
4Q17 core earnings of US$332 million, up 15%1 vs. 4Q16
+ Strong new business volumes
+ Continued growth of in-force business
- Unfavourable policyholder experience
4Q17 APE sales of US$696 million, up 13% vs. 4Q16.
+ Double digit growth in Hong Kong, Singapore, Vietnam, Philippines and Cambodia
+ Strong sales from recently launched products and enhancements in Hong Kong
+ Solid growth in agency and bancassurance channels
1 Core earnings percent increase is adjusted for currency. Note: Order of the vertical bars on the chart correspond to the order in the legend.
Core Earnings(US$ millions)
+16%1
20172016
1,1291,283
4Q17 WAM gross flows of US$6.8 billion, down 20% vs. 4Q16
- Large prior year institutional sales
- Lower retail sales in mainland China
+ Strong retirement flows
+ Solid retail fund flows from Hong Kong, Indonesia, Singapore and Vietnam
2017 core earnings of US$1.3 billion, up 16%1 vs. 2016
2017 APE sales of US$2.9 billion, up 18% vs. 2016
2017 WAM gross flows of US$21.5 billion, up 11% vs. 2016
Canada: Delivered strong insurance sales and core earnings growth in 2017
28
4Q174Q16
359335
-7%
94
37
-31%
4Q17
163
126
4Q16
237
143
Institutional
Retail
693
458
235
+60%
2017
1,106
938
168
2016
2.43.5
1.6
1.8
5.6
1.0
-35%
4Q17
6.3
4Q16
9.6
-6%
2017
9.9
7.2
11.3
4.8
2016
23.2
7.1
24.7
7.6
Retirement
Retail
Institutional Asset Management
4Q17 core earnings of $335 million, down 7% vs. 4Q16:
- Policyholder experience
- Non-recurrence of 4Q16 gains from reinsurance recapture
+ Higher fee income from higher AUMA
4Q17 insurance sales of $163 million, down 31% vs 4Q16:
- Lower retail insurance sales due to actions to improve margins and strong prior year sales in advance of regulatory changes
- Timing of large case group benefits sales
Note: Order of the vertical bars on the chart correspond to the order in the legend.
Core Earnings(C$ millions)
2017
1,384
2016
1,465
+6%
4Q17 WAM gross flows of $6.3 billion, down 35% vs. 4Q16:
- Large case institutional sales in prior year
+ Strong retail flows
2017 core earnings of $1.5 billion, up 6% vs. 2016
2017 insurance sales of $1,106 million, up 60% vs. 2016
2017 WAM gross flows of $23.2 billion, down 6% vs. 2016
Insurance Sales(C$ millions)
WAM gross flows(C$ billions)
U.S.: Delivered strong core earnings and top line growth
29
4Q174Q16
353
+23%
433
8
+1%
4Q17
121
4Q16
120
112
JH Life
JH LTC
42
+1%
2017
464
464
2016
459
417
6.6 6.5
5.6 6.4
0.71.2
+10%
4Q17
14.1
4Q16
12.9
56.4
27.7
23.9
4.8
2016
52.7
26.2
23.2
3.3
+7%
2017
Retail
Retirement
Institutional Asset Management
Note: Order of the vertical bars on the chart correspond to the order in the legend.
Core Earnings(US$ millions)
+24%
20172016
1,218
1,513
Insurance Sales(US$ millions)
WAM gross flows(US$ billions)
4Q17 core earnings of $433 million, up 23% vs. 4Q16:
+ Higher WAM earnings
+ Improvement in policyholder experience
+ Lower amortization of deferred acquisition costs in our V.A. business
+ Favourable policy-related items
4Q17 life insurance sales of $121 million, up 8% vs 4Q16:
+ Strong term, UL and VUL sales
+ John Hancock Vitality sales
4Q17 WAM gross flows of $14.1 billion, up 10% vs. 4Q16:
+ Strong mid-market retirement sales
+ Higher institutional sales
2017 core earnings of $1.5 billion, up 24% vs. 2016
2017 life insurance sales of $464 million, up 11% vs. 2016
2017 WAM gross flows of $56.4 billion, up 7% vs. 2016
Wealth and Asset Management: Strong growth in core earnings and AUMA and continued net flows
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+14%
4Q17
193
4Q16
178
0.9
7.1
3.0
2.0
4Q17
3.7
(1.3)
4Q16
6.1
(2.0)
6.5
2016
15.3
3.7
1.9
9.7 0.5
10.6
17.6
2017
Retail
Institutional Asset Management
Retirement
4Q17 core earnings of $193 million, up 14% vs. 4Q16:
+ Higher fee income from higher AUMA
4Q17 AUMA of $599 billion, up 14% vs. 4Q16:
+ Strong investment returns
+ Net flows
Note: Order of the vertical bars on the chart correspond to the order in the legend with the exception of 4Q16 and 4Q17 net flows, which do to retirement outflows is presented as: Institutional Asset Management, Retail and Retirement.
WAM Core Earnings(C$ millions)
+28%
2017
788
2016
629
4Q17 WAM net flows of $3.7 billion:
+ Net flows across all divisions
+ Lower redemptions in U.S. retail
+ Higher institutional net flows in the U.S.
- Prior year large case institutional sales in Asia and Canada
- Lower sales in mainland China
2017 core earnings of $788 million, up 28% vs. 2016
2017 WAM net flows of $17.6 billion
WAM AUMA(C$ millions)
WAM net flows(C$ billions)
599
3718
544
AUMA
4Q17
Inv. Inc.
& Other
Net FlowsAUMA
4Q16
Strong other wealth sales in Asia
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Other Wealth sales(C$ millions)
4Q17 Other Wealth sales of $2.1 billion, up 25% vs. 4Q16:
+ Continued success of single premium products in Hong Kong and Singapore
- Actions to improve margins in Canada
2017 Other Wealth sales of $8.1 billion, up 2% vs. 2016
Note: Order of the vertical bars on the chart correspond to the order in the legend.
997
740
1,426
656
+25%
4Q17
2,082
4Q16
1,737
4,940 5,150
3,219 2,908
8,058
+2%
2016
8,159
2017
Canada
Asia
Maintained a healthy capital position
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MLI ended 4Q17 with an MCCSR ratio of 224%, down
from 234% in 3Q17:
- Portfolio asset mix changes and U.S. Tax Reform
Financial Leverage Ratio of 30.3%, up from 29.5% in 3Q17, reflecting:
- Portfolio asset mix changes and U.S. Tax Reform
+ Strong core earnings
230 233 230 234 224
4Q173Q172Q171Q174Q16
29.5 30.1 29.2 29.5 30.3
4Q173Q172Q171Q174Q16
MCCSR1 Ratio(%)
Financial leverage ratio(%)
1 Minimum Continuing Capital and Surplus Requirements (MCCSR) of The Manufacturers Life Insurance Company (MLI).
Diversified high quality asset mix avoids risk concentrations
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Fixed Income & Other Alternative Long-Duration Assets (ALDA)
1 Includes Policy Loans and Loans to Bank Clients. 2 Includes debt securities (government bonds, corporate bonds and securitized MBS/ABS), private placement debt, mortgages, cash & short-term securities, policy loans, loans to bank clients, and other.
Oil & Gas 1%
Public Equities 6%
Corporate Bonds 31%
Government Bonds 21%
Timberland & Farmland 1%
Private Placement Debt 10%
Mortgages 13%
Real Estate 4%
Loans1 2%
Securitized MBS/ABS 1%
Other 1%
Power & Infrastructure 2%
Private Equity & Other ALDA 2%
Cash & Short-Term Securities 5%
Public Equities
Total Invested Assets(C$334 billion, Carrying values as of December 31, 2017)
Fixed Income & Other2
▪ Over 83% of the total portfolio
▪ 98% of debt securities and private placement debt are investment grade
▪ Energy holdings represent 8% of total debt securities and private placements, of which 96% is investment grade
Alternative Long-Duration Assets▪ Diversified by asset class and geography
▪ Historically generated enhanced yields without having to pursue riskier fixed income strategies
▪ Oil & Gas ALDA holdings represent less than 1% of our total invested asset portfolio
Public Equities ▪ Diversified by industry and geography
▪ Primarily backing participating or pass-through liabilities
Investment-related experience has exceeded our annual $400M through-the-cycle expectation, on average, since 2012
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Investment-related experience(C$ millions)
475567
197
559
906
1,149
6-year average2015 20172016
(530)
201420132012
400
Continued strong credit experience in 4Q17
(C$ millions, post-tax) 4Q16 1Q17 2Q17 3Q17 4Q17
Credit (impairments) / recoveries $(19) $2 $2 $(13) $(13)
Credit (downgrades) / upgrades (27) 6 7 14 (6)
Total credit impacts $(46) $8 $9 $1 $(19)
Assumed in policy liabilities 35 43 45 45 47
Net credit experience Gain/(Loss) $(11) $51 $54 $46 $28
35
(11)
51 5446
28
3Q174Q16 4Q172Q171Q17
Impact on earnings
Net credit experience(C$ millions, post-tax)
Interest rate related sensitivities remain well within our risk appetite limits
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Potential impact1 of an immediate parallel change in “all rates”: 3Q17 4Q17
(C$ millions) -50 bps +50 bps -50 bps +50 bps
Excluding change in market value of AFS bonds held in surplus $ (100) $ - $ (200) $ 100
From fair value changes in AFS bonds held in surplus, if realized2 $ 1,000 $ (900) $ 1,100 $ (1,000)
MLI MCCSR Ratio impact:
- Excluding change in market value of AFS bonds held in surplus (7) pts 7 pts (7) pts 5 pts
- From fair value changes in AFS bonds held in surplus, if realized 3 pts (5) pts 4 pts (5) pts
Potential impact1 of a parallel change in corporate bond spreads: 3Q17 4Q17
(C$ millions) -50 bps +50 bps -50 bps +50 bps
Corporate spreads $ (800) $ 700 $ (1,000) $ 1,000
Potential impact1 of a parallel change in swap spreads:(C$ millions)
3Q17 4Q17
-20 bps +20 bps -20 bps +20 bps
Swap spreads $ 400 $ (400) $ 400 $ (400)
1 All estimated sensitivities are approximate and based on a single parameter. No simple formula can accurately estimate ultimate future impact. Please refer to “Caution related to sensitivities” in our 2017 MD&A.2 The amount of gain or loss that can be realized on AFS fixed income assets held in the surplus segment depends on the aggregate amount of unrealized gain or loss.
Equity exposure by market
37
(C$ millions)3Q17 4Q17
S&P (210) (240)
TSX (90) (90)
TOPIX (20) (20)
EAFE (Europe, Australasia & Asia ex. Japan)3 (100) (120)
Net income impact assuming full hedge offset (420) (470)
Assumed partial dynamic hedge offset (180) (140)
Net income impact assuming partial dynamic hedge offset (600) (610)
1 All estimated sensitivities are approximate and based on a single parameter. No simple formula can accurately estimate ultimate future impact.2 Please note the Company’s disclosures which describe risk factors for hedging and reinsurance strategies.3 EAFE ex. Japan exposure is mainly to Hong Kong and Singapore markets.
Potential impact on net income attributed to shareholders arising from a 10% decline in public equity returns1,2
Note to users – Performance and Non-GAAP Measures
We use a number of non-GAAP financial measures to measure overall performance and to assess each of our businesses. A financial measure is considered a non-GAAP measure for Canadian securities law purposes if it is presented other than in accordance with generally accepted accounting principles used for the Company’s audited financial statements. Non-GAAP measures include: core earnings (loss); core ROE; core EPS; diluted core earnings per common share; core earnings before income taxes, depreciation and amortization (“core EBITDA”); core EBITDA margin; core investment gains, constant currency basis (measures that are reported on a constant currency basis include percentage growth in core earnings in Asia Division, sales, APEsales, gross flows, premiums and deposits, core EBITDA, core earnings in Wealth and Asset Management, new business value, andassets under management and administration); assets under administration; premiums and deposits; assets under management and administration; assets under management; capital; embedded value; new business value; new business value margin; sales; APE sales; gross flows and net flows. Non-GAAP financial measures are not defined terms under GAAP and, therefore, are unlikely to be comparable to similar terms used by other issuers. Therefore, they should not be considered in isolation or as a substitute for any other financial information prepared in accordance with GAAP. For more information on non-GAAP financial measures, includingthose referred to above, see “Performance and Non-GAAP Measures” in our 2017 Management’s Discussion and Analysis. Core earnings per common share ("Core EPS") is core earnings available to common shareholders expressed per weighted average common share outstanding.
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We operate as John Hancock in the United States and Manulife in other parts of the world.
Thank you
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Investor Relations contacts
Robert Veloso, MBA, CFA
Head of Investor Relations
(416) 852-8982
Daniel Kenigsberg, MBA, CFA
(416) 852-7208
Shubha [email protected]
(416) 852-4459
Eileen Tam, HKICPA
(852) 2202-1101